Next warns shoppers of higher prices if Iran conflict drags on till summer

Fashion giant Next today warned shoppers it will have to start passing on costs through higher prices if the conflict in the Middle East persists through to the summer.

The retail chain said that so far it has only accounted for around £15 million of extra costs - chiefly in the form of higher fuel and air freight bills - and these have been offset by savings elsewhere.

However, if the disruption caused by the war goes on beyond three months and “if we see these costs persist, then we will begin to pass costs through as higher pricing.”

Next, which has about 6% of its sales in the Middle East, is the first major UK consumer business to warn explicitly about the impact on shop and online consumer prices since the US and Israeli bombardment of Iran began on 28 February.

City forecasters are now expecting the rate of inflation in the UK to hit 4% later this year as higher energy and financing costs cascade through the economy.

The company, headed by chief executive Lord Wolfson, who last year warned of “anaemic” growth for the UK economy, today unveiled pre-tax profits for the year to January up 14.5% at £1.158 billion on sales of just over £7 billion, a 10.8% increase.

Next said UK sales in the first eight weeks of the year were “encouraging” and also strong overseas “up to the point the conflict began in the Middle East.”

However, the conflict “may continue to restrain growth in that region” and is “likely to have knock-on effects on costs, selling prices and consumer demand in the rest of the business.”

The statement continued: “ As yet, we have no feel for the medium-term effects on supply chain resilience, freight rates, factory gate prices and consumer demand. Much will depend on how long the conflict persists, and how much permanent damage is done to the world’s energy infrastructure.”

In its guidance for the current year Next, which also owns the Cath Kidston, Reiss, and Russell & Bromley brands, said it expects sales to increase by 4.2% with pre-tax profit up 4.5% £1.21 billion.

Growth is expected to slower than last year in the UK in part because of a boost in 2025 from “very favourable summer weather” and the cyber attack on rival Marks & Spencer, as well as higher UK unemployment this year.

Chris Beauchamp, chief market analyst at IG, said: "Today's figures from Next contain a hint that the rise in fuel costs is bound to extend beyond increases at the pumps. The retailer's decent figures underline another good period of performance, but the group highlighted the possibility of price rises should the conflict in Iran go on for longer than a few weeks.

“This kind of update is all we have to go on until UK March inflation comes through in late April. After a strong start to the year, Next and other retailers are facing tougher times, just like UK consumers."